Question

Exercise 21-2 Buffalo Company leases an automobile with a fair value of $10,452 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50 months. 2. Rental of $240 per month (at end of each month). (The present value at 1% per month is $9,408.) 3. Estimated residual value after 50 months is $1,030. (The present value at 1% per month is $626.) Buffalo Company guarantees the residual value of $1,030. 4. Estimated economic life of the automobile is 60 months. 5. Buffalo Company's incremental borrowing rate is 12% a year (1% a month). Simon's implicit rate is unknown. What is the present value of the minimum lease payments? The present value of the minimum lease payments SHOW LIST OF ACCOUNTS LINK TO TEXT (c) Record the lease on Buffalo Company's books at the date of inception. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit (d) Record the first month's depreciation on Buffalo Company's books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to 0 decimal places, e.g. 15.) Account Titles and Explanation Debit Credit

Answer 1

Ogresent Value -> 1200 monthy payment (240x 50 ) 626 Residual value 1262G Present volue → Debit credit 126 26 lease Equipment 12626 lease liability 232 D) Depreciation Expen Sense 232 Accumulated depreciation [12626-1030]/50=23192 114 lease liability 126 Interest Expense 240 cash [0.01x126263 = 126.26